Small Cap Value Report (21 Aug) - DX., HEAD, SPSY

Monday, Aug 21 2017 by

Morning folks,

I'm planning to look at Headlam (LON:HEAD), Spectra Systems (LON:SPSY) and DX (Group) (LON:DX.) today.


DX (Group) (LON:DX.)

  • Share price: 8.65p (-9%)
  • No. of shares: 200.5 million
  • Market cap: £17 million

Resumption of trading in DX Shares

Lots of drama on the open here as this logistics/parcel distribution outfit finally returned to trading.

The shares had been suspended since March, leaving shareholders to chew over dribs and drabs of news from the company as it negotiated the terms of a potential reverse takeover with John Menzies.

In a July trading update, covered here, trading was reportedly in line with expectations, and the bank was supportive of the £19 million net debt position. The CEO and the CFO simultaneously stepped down from their positions after presiding over huge percentage declines in the share price.

That brings us up to last week, when the John Menzies deal fell through (link) over a failure to agree terms, leaving DX to work on its business transformation alone:

This approach has the support of both DX's major shareholder and its bankers, with discussions on new financing options for DX already underway.

The "major shareholder" in this case is Gatemore, who were previously shareholder activists in French Connection (LON:FCCN) (looks like they've sold up and moved on from that now).

"New financing options": does this mean an equity raise? Maybe the bank is supportive in the short-term, but needs DX to raise more capital for it to remain supportive? That's pure speculation on my part, but is how I'd interpret that paragraph.

With the takeover not happening, the shares are back trading. They plunged >30% on the open but are only c. 10% lower now.

Full-year results "will include the aborted costs of the Transaction and certain other expected non-recurring exceptional items, principally a non-cash goodwill impairment".

Lots of red ink then. More losses on the way.

I probably shouldn't spend any more time on this, because in my opinion this is uninvestable, and is only worth gambling money at this stage.

If you are Gatemore, you can at least get high-quality information from the Board and can…

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All my own views. I am not regulated by the FSA. No advice.

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DX (Group) plc is engaged in the provision of parcels, mail and logistics services in the United Kingdom and Ireland. The Company's segments include parcels and freight, mail and packets, and logistics. The parcels and freight segment offers services, such as DX 1-Man, engaged in the delivery of irregular dimension and weight items; DX Courier, which provides next day parcel services, and DX 2-Man, which offers a business to consumer home delivery solution for heavier and bulkier items. The mail and packets segment comprises services DX Exchange, a business to business (B2B) mail service providing its customers with collection and delivery times; DX Secure, which provides security, and DX Mail, a mail service offering downstream access for smaller volume users. The logistics segment includes the provision of customer-liveried vehicles and uniformed personnel, such as fleet management solutions and integration with customer's business operations. more »

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Headlam Group Plc is a United Kingdom-based company, which is engaged in the marketing, supply and distribution of a range of floorcovering products. The Company's operations are focused on providing customers, principally independent floorcovering retailers and contractors, with a range of floorcovering products supported by a next day delivery service. The Company operates through 56 operating segments in the United Kingdom and five operating segments in Continental Europe. Each operating segment is a trading operation aligned to the sales, marketing, supply and distribution of floorcovering products. The Company's activities and facilities are located throughout the United Kingdom, France, Switzerland and the Netherlands. Its business in France operates from approximately two distribution centers and over 20 service centers, and the businesses in Switzerland and the Netherlands each operate from a single distribution center. more »

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Spectra Systems Corporation provides technology-based security solutions. The Company operates in three segments: Authentication Systems Group, which captures the hardware, software and materials related to banknote, tax stamp and other high value goods; Secure Software Transactions Group, which provides an internal control system (ICS) software offering to the lottery and gaming industries, and Banknote Cleaning Group, which captures the technology related to cleaning soiled banknotes. ICS provides tools for fraud detection, money laundering, match fixing and statistical analysis. The Company develops and sells integrated optical systems across a spectrum of markets, including currency manufacturing and cleaning, branded products, industrial logistics and other highly sensitive documents. The Company's solutions include engineered materials, sensors and quality control equipment. The Company's materials are available in several forms, including particles, threads, inks and coatings. more »

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  Is LON:DX. fundamentally strong or weak? Find out More »

29 Comments on this Article show/hide all

FREng 21st Aug '17 1 of 29


When you look at Spectra Systems (LON:SPSY) please also consider the "restricted" version of the same stock Spectra Systems (LON:SPSC) . Same dividend, it seems. Lower price. Dreadful spread ...

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jonno 21st Aug '17 2 of 29

Solid results from Headlam. A well managed business, albeit cyclical. Will be interested in your views Graham.

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FREng 21st Aug '17 3 of 29

Graham: here's an explanation of the two share classes that I found on ADVFN

Spectra Systems Corporation has two lines of Common Shares which trade on AIM, Restricted (SPSC) and Unrestricted (SPSY), and the aggregate market capitalisation of the Company is £9.89 million. these shares are now common stock available to trade. Only 691k left so another part of the tidy up will soon be completed.It has no bearing on the m'cap of SPSY as far as i'm aware. Here's an old piece of news.

Shares Not in Public Hands In the terms of the AIM Rules published February 2010 and insofar as it is aware, at 10 December 2013, 12.69% of the Company’s AIM securities were not in public hands. Restrictions on Transfer of AIM Securities 4,640,894 Ordinary Shares (AIM:SPSC) trade with the following restriction: The newly issued common shares, $.01 par value per share, of the Company ("Common Shares") which were issued pursuant to an exemption from registration under Regulation S promulgated under the US Securities Act of 1933 (the "US Securities Act") and certain previously issued Common Shares which were issued pursuant to an alternative exemption from registration promulgated under the US Securities Act are restricted securities as defined in Rule 144 of the US Securities Act and may not be offered, sold or otherwise transferred except pursuant to an effective registration statement or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. The remaining 40,610,476 Ordinary Shares (AIM:SPSY) trade without transfer restrictions.

If you can make sense of that, I'd be grateful. It appears that the "restriction" doesn't interfere with free trading of Spectra Systems (LON:SPSC) on Aim, but makes the SPSC price lower and the yield a couple of percent higher than SPSY.

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AlanJenkins2 21st Aug '17 4 of 29

I still own a few DX [groan].All that I will say is that it would be nice if Stocko could get their information feed working on this one,given that I have paid my sub.

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JohnEustace 21st Aug '17 5 of 29

I would be interested in any views on Frontier Developments (LON:FDEV). They are a video game developer and publisher that is up 15% today on an RNS announcement of a new game based on Jurassic Park to launch next year. Tencent took a 9% stake in them at the end of July.
I hold, and video games and e-sports is an area I am looking to add to.

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biloseli 21st Aug '17 6 of 29

Re DX (Group) (LON:DX.) the west London solicitors who handle business matters for me will no longer accept documents from DX from next month. If enough other solicitors do the same, the network effect will be lost to DX.

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Graham Neary 21st Aug '17 7 of 29

In reply to post #210388

Hi, can you tell us why the solicitors have changed their policy?

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Graham Neary 21st Aug '17 8 of 29

In reply to post #210343

Hi FREng, it's a US company so I'm guessing they felt the need to issue some US-registered shares for whatever reason at some point in the past. And that leaves them having to deal with the US legal system for these shares.

There aren't too many of them outstanding so I'm not too worried about them.



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 Are LON:DX.'s fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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